Dr. Simeon Djankov:

The most striking analytical finding of the World Development Report is the rapid rise of companies that become a truly global force in less than a decade. We have some striking figures of a company such as Alibaba that did not exist nine years ago as an international company and now it is much larger than Walmart, which previously was the largest company in the world. Alibaba is now twice as large as Walmart in a matter of nine years. We document in other sectors also how in three to five years a company can rise and totally obliterate the competition globally. If those companies are headquartered in Ireland, that is good news. It creates other issues, as I mentioned, such as the competition policy issue and the way to tax those companies but potentially that can be good for the economy and the country. The Senator is right to ask if corporate income tax is the way to raise revenue. Corporate income tax is very footloose. We document that in the report. Companies choose where to base their headquarters, research and development facilities and marketing departments. Much of this choice is not driven by human capital, although we would like it be, but by tax considerations such as the corporate income tax rate. There are other ways to tax such as more consumption based taxes. By that I do not only mean VAT but excise taxes, which is another way to think about it. That becomes increasingly prevalent not by choice but by the nature of taxation. We suggest in the ultimate chapter of our report, chapter 7, how countries have moved essentially from particular corporate income taxation to consumption based taxation. This is the way of the future. High corporate income taxes that were prevalent in the past will remain in the past.

In the last year, the United States has drastically reduced its corporate income taxation. France is moving to much lower corporate income taxes from next year. It is not the way to tax in the future. At the same time, these companies have shareholders. By and large we are arguing in this report that shareholders manage to get away globally without paying much tax, if any. We picked particular companies among the ones the Senator mentioned. Overall we look at Fortune 500 companies and come to the conclusion that their shareholders essentially do not pay taxes, partly because they are mostly located in the Bahamas and other such tax havens. Globally, we need to do something about this. We hope that with this report, the International Monetary Fund, the World Bank and our institutions will step in and try to be agents for this change. If a US company does much of its operations in Ireland, it should be paying not just corporate income tax but also the equivalent of dividend taxes here. That almost never happens now. There is a great need for social policy and the tax policy that goes with it. This is a very open area. The European Union is trying to do some work but it is very early days. The OECD has some work that is also in the very early stages. Not so much the companies but their shareholders - sometimes they are one and the same and sometimes not quite - are essentially escaping taxation.

The Irish economy has a lot of such companies so Ireland has knowledge of them and their shareholders. It can be one of the countries that create innovative taxation models. We write about Korea and Brazil, interestingly, middle-income countries that are at the forefront of thinking on how to redesign taxation successfully. They manage to collect a lot more taxes from these platform companies than European countries do.

As a final word on what happens to these companies if a country like Ireland manages to tax them and their shareholders as well at the appropriate level, there we will rely on either regional - as in European Union - or wider co-operation on taxation so that these profits are not just parked in the Caribbean or other such areas. That is a much longer fight.